Ap econ

What is the definition of scarcity in economics?

Scarcity is when unlimited wants meet limited resources.

What is the study of economics focused on?

Economics studies how societies manage scarce resources to satisfy unlimited wants.

What does opportunity cost represent?

The value of the next best alternative given up when making a choice.

What do points on the production possibilities curve (PPC) represent?

Efficient production.

What does a bowed out PPC indicate?

Increasing opportunity cost, meaning resources are not perfectly adaptable.

What is absolute advantage?

The ability to produce more of a good with the same amount of resources or the same amount of a good with fewer resources.

What does comparative advantage enable in trade?

It allows for mutually beneficial trade by producing goods at a lower opportunity cost.

What characterizes a command economy?

The government makes all economic decisions.

What is the law of demand?

The inverse relationship between price and quantity demanded.

What are the determinants of demand?

Tastes and preferences, number of consumers, income, price of related goods, and consumer expectations.

What occurs when the quantity demanded is greater than the quantity supplied?

A shortage.

What does the price elasticity of demand (PED) measure?

The responsiveness of quantity demanded to a price change.

What situation does a price ceiling create?

A maximum legal price set below equilibrium, causing a shortage.

What do fixed costs represent?

Costs that do not vary with the level of output.

What is a characteristic of a perfectly competitive market?

Many small firms selling identical products.

In a monopoly, what is the nature of the demand curve?

The firm faces a downward-sloping market demand curve.

What happens to the average total cost (ATC) in economies of scale?

Long-run average total cost falls as output increases.

What is price discrimination?

Charging different prices to different consumers for the same good or service based on willingness to pay.

What is a key feature of oligopoly?

Few large sellers with interdependent decision-making.

What are public goods?

Goods that are non-rivalrous and non-excludable, leading to the free-rider problem.

What are negative externalities?

Costs experienced by third parties not directly involved in a transaction, such as pollution.